25% Upside For PVH Stock?

by Trefis Team
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PVH stock (NYSE: PVH) is poised for near-term gains. PVH stock is down 33% YTD while the broader market has gained around 10% despite the outbreak of coronavirus. However, a rebound in demand for luxury products as well as improved store traffic should support demand for PVH’s products. This will positively impact its revenue growth rate – supporting the company’s stock price.

PVH’s stock currently trades near $71 and it has lost around 33% in value so far this year. It traded at a pre-Covid high of $90 in February, and it is 21% below that level now. Also, the stock has gained around 144% since its March 23 lows of $29. Having said that, we believe that the stock has an upside of around 25% from its current level driven by expectations of improving luxury demand and gradual store openings following the gradual lifting of lockdowns. Our conclusion is based on our detailed analysis of PVH’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • From 3/24/2020: S&P 500 recovers 59% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system

In contrast, here’s how PVH and the broader market performed during the 2007/2008 crisis

2007-08 Financial Crisis

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in the S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of the S&P 500 index
  • 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

PVH vs S&P 500 Performance Over 2007-08 Financial Crisis

PVH stock declined from levels of around $54 in September 2007 (pre-crisis peak) to levels of around $17 in March 2009 (as the markets bottomed out), implying PVH stock lost 69% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of about $41 in early 2010, rising by 146% between March 2009 and January 2010. In comparison, the S&P 500 declined by 51% before recovering by 48% between March 2009 and January 2010.

PVH Fundamentals

PVH’s revenues grew by 24% from $8 billion in 2015 to $9.9 billion in 2019, primarily as a result of the steady growth across all three brands. However, the company’s margins took a hit, with earnings falling from $6.95 per share in FY2015 to $5.63 in FY2019. Moreover, the company’s Q2 2020 revenues were 33% below the level seen a year ago, and the EPS figure for the quarter slid from $2.58 in Q2 2019 to -$0.72 in Q2 2020.

Does PVH Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

PVH’s total debt increased from $3.2 billion in 2016 to $3.5 billion at the end of Q2 2020, while its total cash improved from $0.7 billion to $1.4 billion over the same period. Moreover, the company’s cash from its operations in the first half of 2020 was $248 million. PVH has adequate liquidity and it appears to be in a good position to weather the crisis.


Phases of Covid-19 crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with the gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • July-November 2020: Poor Q2 results and lukewarm Q3 expectations, but continued improvement in demand, a decline in the number of new cases, and progress with vaccine development buoy market sentiment.
Keeping in mind the trajectory over 2009-10, this suggests a potential recovery to around $90 once economic conditions begin to show signs of improving. This marks a full recovery to the $90 level PVH stock was at before the coronavirus outbreak gained global momentum.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.


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